Why do Australian startups fail?
What are some of the top reasons why you think startups fail in Australia?
I agree with Phil.
I don't think it's so much that Aus startups fail - Australia just has a really poor way of assisting startups.
1. Risk averse investors: Australians are too risk averse to put their money into 'unknowns' or 'no immediate revenue' models. Returns are demanded from day one meaning that any business that needs VC at seed stage has to go overseas or bootstrap.
2. Government doesn't support: Commercialisation Australia brought some great startups through the early stages. Now that is gone there is a list of potential investors to approach. Compare to other countries especially Singapore where there is a real incubator mentality for start-ups including massive tax breaks and a good investing environment, Australia has squandered the opportunity to be a startup hub.
3. Cost of doing business: It is just so damned expensive to do anything from registering a domain name through to asset purchases not to mention wages for the highly skilled workforce generally required especially for tech startups.
4. Further to Phils point about economies of scale - I have seen a lot of good ideas spawned that could be scaled up globally, but the heartbreak of funding and capital usually sees those ideas go by the way-side and eventually picked up somewhere in the world where investors are willing to take a chance.
Until VC's and Angels become a little less averse, and the government looks at startups differently, we will continue to see domination of large corporations and strangulation of progress. IMHO.
I think the primary reasons are (1) we are a small nation so there is smaller economy of scale (2) very expensive to do business so cost per unit is much higher (3) un-supportive environment so the odds are not in startup's favour from the outset.
Thanks Phil. I hadn't heard of these reasons before. It is good to hear new perspectives.
Two things strike me about the comments above.
1. They are probably more reasons why startups don't start in the first place rather than the reasons they fail.
2. They apportion blame to possible outside influences.
Some of those things may be factors, but a well researched startup already knows about the support available, it knows the size of the potential market and it knows the cost of doing business.
And if they haven't considered these factors, then perhaps more of the blame for failures rests with the startup for not doing adequate preparation to weigh up the potential of the business.
Top of the list for me is:
They don't provide a solution to a problem enough people care about to give them money to sovle it.
Why does this happen? Usually failure to understand the world from the users' point of view. Does the problem really exist? Will they pay to solve it? How soon do they need the problem fixed? If you don't know the answers to these, then do the research before building anying.
It's much cheaper to fail at the research stage.
I agree with both Brian and Michael ...
I have a few things to add from my side
What a loaded question! :)
While there are some big local factors that affect startups (and I don’t disagree that local funding is lagging behind many of our overseas counterparts) there are lots of other reasons that startups fail, globally.
In our experience of working with lots of startups and SMEs, here’s my take:
- Lack of appropriate research - as touched on in some of the other answers, preparation prior to launch is one of the biggest factors affecting success. Understanding your market inside out and refining your approach prior to launching anything is one of the most critical things you can spend time on.
- Lack of commitment - the initial phases of launching a startup are exciting. As time progresses and the business starts to mature, the reality of doing business begins to dawn and many founders and teams struggle to see through the mundane to the bigger vision.
- Moving too slow - in today’s world of instant access to info and knock-offs, if you don’t have your ducks in a row and are too slow off the starting blocks, your idea will soon take flight with someone more organised (provided it’s a good one).
I’d say there are lots more reasons startups fail, but these are the big ones. It’s a tough world but well worth the fight if you believe in your startup!
In my experience, when startups fail its because they haven't answered the "why" question properly. It always comes back to the "why". Why am I in business? Why would my clients choose me? Why would a client choose me over another?
That's just the nature of running businesses. Most fail within 5 years. Not exclusive to Australia..
Fleur Leong, Director at Conquest Business Solutions Pty Ltd
I like your comments, Michael. The ones that are successful have gone offshore.